Can You Get a Student Loan with Bad Credit? A Complete Guide
There’s no question that if your credit history isn’t that good, you’ll have a tougher time borrowing cash than someone with an unblemished record of repayments.
However, that doesn’t mean you’ll be completely excluded from all financial products, especially those aimed at improving your prospects in the long term.
Let’s look at how bad credit impacts your eligibility for student loans, and what else you have to keep in mind if you want to fund further education by borrowing money.
The federal loan route is often the most appropriate
With the federal loan program, you can get cash to cover tuition fees and other costs of being a student, and the majority of these packages are not contingent on you meeting particular credit score requirements.
The main downside is that you’ll be restricted in terms of the amount you can borrow, both on an annual basis and over the lifetime of the arrangement. So in certain cases, a federal loan won’t cut the mustard for an aspiring college or university student with bad credit.
Private loans are always on the cards
Whether you need a full blown student loan or just a way to top up your federal loan, a private lender could be the answer.
For example, private student loans from SoFi and other reputable providers can be acquired by students with bad credit, or not much credit history to speak of.
Obviously it pays to compare private student loans to make sure you’re getting the best deal. You should also check the terms, conditions and rates of interest so you know when you’ll need to start repaying your loan, and how much this will cost you.
Having a co-signer will expand your options
If you go the private loan route but you feel that the deals you’re offered are too expensive, or the lender you want to work with won’t approve your application, adding a co-signer into the mix can make a difference.
This will basically mean that there’s another person on the loan agreement who’s jointly responsible along with you for repaying the principal sum.
The co-signer will need a solid credit score to make this worthwhile, and you also need to recognize that by adding them to the agreement, you have a chance of actually hurting their credit score as well if anything goes awry. For this reason people tend to use parents as co-signers, because of the risks involved.
Understanding rates is important
Whether or not you use a co-signer to get a private student loan, you have to be conscious of the way that interest rates will impact your repayment costs when they kick in after you complete your studies.
People with poor credit ratings are lumbered with steeper rates than those with crystal clear histories, and while this may sound unfair, it’s basically down to lenders wanting to protect themselves from the costs of giving cash to unreliable customers who eventually end up defaulting on their loans.
A co-signer with a good history will usually let you access lower rates than if you have bad credit and you apply for a student loan solo.
Lastly, if you discover that no form of student loan product is available to you, there are income share agreements (ISAs) to consider.
These are not credit rating-dependent, and basically mean that once you graduate, the lender will take a percentage of your salary for a fixed period of time.
It’s also worth seeing if you’re eligible for scholarships offered by your school of choice, or by other organizations and bodies. In short, don’t be disheartened if bad credit is hanging over you, because there are ways around this.